Corporate Governance

I. OVERVIEW

This Corporate Governance Statement sets out the Credit Corporation Group’s key governance policies and practices operating during the 2019 financial year.

Credit Corporation is incorporated in Papua New Guinea (PNG) and is listed on PNG’s national stock exchange, PNGX Markets (PNGX). The entities that form the Credit Corporation Group are managed via a matrixed Structure throughout the South Pacific. The Group’s head office is in PNG where most functional leads are housed to effect governance oversight to its locally-incorporated subsidiaries in the other countries in which the Group operates throughout the Pacific.

Our governance structure is influenced by the requirements of regulators throughout the Pacific, with the parent company, Credit Corporation, maintaining oversight on holistic issues and global influences and being responsible for setting and monitoring compliance with the Group’s governance framework.

Each of Credit Corporation and its subsidiaries has a Board and Management structure appropriate for its operations, complexity, growth and size. Whilst our subsidiaries are locally incorporated in the jurisdiction in which they operate, they must comply with the  Group’s Corporate Governance Framework.

Legal and Regulatory Framework

Credit Corporation and each of its subsidiaries must comply with relevant laws in each of the countries in which they operate.

The Credit Corporation Group operates in a highly regulated environment. While Credit Corporation is not a regulated entity itself, our finance subsidiaries are regulated and supervised as finance and authorised deposit-taking institutions by various Pacific regulatory and supervisory bodies (including Central Banks) in the jurisdictions in which we operate.

Accordingly, the Credit Corporation Group must comply with strict regulatory requirements in respect of governance, capital, liquidity, risk management, conduct, financial crime and systems and controls, among other things.

As Credit Corporation is listed on PNGX, it must also comply with the PNGX Listing Rules.

Risk Management Structure

Credit Corporation has a conservative yet consistent approach to risk, which has seen us deliver sustained long-term growth by  protecting our capital to lend responsibly and support our business growth.

All of our employees are responsible for the management of risk, with the ultimate accountability residing with the Board. Our risk culture is developing and will be embedded through clear and consistent communication and appropriate training for all employees. A comprehensive risk management framework that is under continuing development, is applied throughout the Group, and is reinforced with our values and code of conduct. Our risk management structure is central to our strategy and was bolstered by the  appointment our first dedicated Group Chief Risk Officer in 2019.

 

II. THE BOARD OF DIRECTORS

1. THE BOARD STRUCTURE AND ROLE

The Board of Directors has the ultimate responsibility for the success of the Group and is charged with delivering sustainable financial performance and long-term shareholder value and is responsible for the overall direction, supervision and control of the Group and its  management.

The Board has adopted a Board Charter, that sets out, among other things:

  • the role and responsibilities of the Board (the key aspects of which are set out in Table One), including matters specifically reserved to the Board; and
  • the role and responsibilities delegated to the Chief Executive Officer, which is primarily the management of the day-to-day operations of Credit Corporation.

The Board comprises 7 Directors: five independent and two non-executive Directors. During 2019, two Directors left the Board being:

  • Johnson Kalo
  • David Doig

They were not replaced.

The Board operates within the ambit of the Companies Act 1997, the Credit Corporation’s Constitution and the Board Charter. In  discharging its duties, the Board has elected to form 5 (five) separate Board committees.

 

Each committee is governed by its own Charter which defines roles, responsibilities and membership, and each committee provides recommendations to the Board and advice on specific issues.

Up until April 2019, there were 4 (four) Board committees. The Board decided to divide the previous Audit & Risk and Compliance Committee into two completely separate committees, reflecting a sharper focus on Risk Management and driving the three lines of defence model.

2. BOARD’S RELATIONSHIP WITH THE CHIEF EXECUTIVE OFFICER

The Board confirms the duties and responsibilities of the CEO annually and approves the Key Performance Indicators for the CEO, linked to the Group’s strategic goals as set by the Board.

The CEO is responsible for the day-to-day management and operations of the Group’s businesses and reports to the Board on key operational and management issues, including both financial matters and material risk and compliance matters.

3. CHAIR

The Directors elected Sydney Yates as Chair of the Board in November 2018. The Chair is an independent Director.

The role of the Chair is set out in the Board Charter and includes:

  • representing the Board to shareholders and communicating the Board’s position
  • leading the Board and facilitating and encouraging constructive discussion in meetings
  • assessing and agreeing professional development plans for all the Directors
  • monitoring the contribution of individual Directors and providing annual feedback on their performance and effectiveness.

The performance of the Chair is reviewed every year by the Board as part of the annual Board Self-Assessment Process. The Board understands that Board leadership is key to having an effective Board that sets the direction of Credit Corporation and its subsidiaries, and discharges its fiduciary and other duties under the Companies Act and other laws.

4. BOARD SKILLS AND COMPOSITION

The Board seeks members who combine a broad spectrum of experience and expertise with a reputation for integrity and localised knowledge in the jurisdictions we operate.

Directors are chosen from external leaders in the community based upon contributions they can make to the Board and management. Our Board are able to challenge management in a constructive manner and drive strategic results.

The Board comprises a majority of independent Directors and, as a collective group, offers a diversity of skills, opinion and perspectives with varying experiences, gender and demographics. This drives robust decision making.

Regular review of membership is conducted by the Board to ensure the current and future members provide the mix of skills necessary to support the strategic direction, and rise to the challenges of the Group.

The key skills and experience of the Board members are captured below:

5. BOARD PERFORMANCE EVALUATION

The Board expects a high level of performance from each Director. The Chair is responsible for the performance evaluation process to  confirm this.
The Board assesses its performance each year and is required to have an independent assessment every three years as part of compliance with the BPNG Prudential Standards. The last independent board assessment was conducted in 2019 by an external consultant.

6. DIRECTOR APPOINTMENT AND ELECTION

The appointment of Directors is governed by the Credit Corporation’s Constitution.

All Directors are appointed for an initial three-year term. Directors can only serve a total of three terms, being nine years.

All Directors must satisfy two requirements prior to taking up active duty on the Board – they:

i) must be cleared by BPNG as a ‘Fit and Proper’ person pursuant to the Prudential Standards issued by BPNG under the Banks and Financial Institutions Act 2000; and

ii) they must be duly appointed by the Board or the shareholders in a general meeting in accordance with the Constitution.

A Director appointed by the Board holds office only until the next AGM and is eligible for election by the shareholders at that meeting.
Table Four presents the summary of Directors’ tenure with an indication of rotation of Directors pursuant to Article 66 (2) of the Constitution.

7. DIRECTOR DEVELOPMENT

In 2019, there was number of external workshop and courses that Directors participated in to improve the Board’s performance, oversight capability and insight into the business. Most Directors completed the required 20 hours of training in the year.

8. DIRECTOR INDEPENDENCE

The Board determined that a majority of the Directors (6 out of 9 (now 7)) were independent throughout the reporting period.

The Board reviews the interests notified by Directors regularly and formally assesses Director independence annually.

Directors are considered to be independent where they are independent of management and free of any business or other relationship that could, or reasonably be perceived to, materially interfere with their capacity to bring independent judgement on issues before the Board and to act in the best interests of Credit Corporation and its shareholders generally. Independent Directors must not be an ex-employee of Credit Corporation nor should they hold more than a 5% shareholding interest in the company.

As part of the formal independence assessment, the Board considers all business relationships between the Group on the one hand, and the Directors and companies of which they are directors or substantial shareholders on the other hand. In each case those business relationships were of an amount not material to both parties and the Director was not involved in decisions about those relationships.

9. CEO AND SENIOR EXECUTIVE PERFORMANCE AND REMUNERATION

The Nominations & Remuneration Committee reviews the performance of the CEO and executive employees, and makes recommendations about remuneration and employment conditions to the Board for approval.

In 2019, the Nomination & Remuneration Committee commenced a review of the remuneration structure of the Group which is anticipated to be completed and presented for Board approval in 2020. The remuneration review work is led by a leading global external consulting firm.

10. CONFLICTS OF INTEREST

Any Director who considered they had a conflict of interest or a material personal interest in a matter concerning Credit Corporation declared it immediately to the Chair.

The Company Secretary maintained a Register of Interests which was updated at every Board meeting. The Secretary also monitored all information coming to the Board and its committees, and potential conflicts were flagged with the affected Director and the Chair.

11. INDEPENDENT ADVICE

Directors are entitled to seek independent advice on their duties at the Group’s expense, provided that they receive the prior approval of the Chair. The advice is normally made available to all Directors. No Director sought independent advice during the 2019 year.

12. COMPANY SECRETARY

There is one Company Secretary for the Board and the Board committees. The Company Secretary is appointed by the Board under the Constitution.
The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board.
The current Company Secretary was appointed in June 2017 and is a lawyer by profession with over 10 years of legal experience. Prior to her role with Credit Corporation, she worked in various legal capacities with the government of PNG, State Owned Enterprises and was attached with the Permanent Parliamentary Committee on Public Accounts with the PNG Legislator.

 

III. RISK MANAGEMENT & ASSURANCE

1. RISK MANAGEMENT FRAMEWORK

The Board oversees risk management within the Group. The Group’s businesses are exposed to a range of strategic, financial, operational and compliance related risks. These risks are inherent in operating finance, property and investment businesses.

The risk strategy is to operate a “three lines of defence” model, explained below.

The Board also identifies and implements opportunities to improve the Risk Management Framework. The annual risk review process resulted in enhancements in 2019 including the functional shift of key businesses areas into separate 1st & 2nd line teams within the risk management framework.
The design of the Group’s Risk Management Framework was reviewed by the Risk Committee during the reporting period.

The CEO and the Executive Management team ensures risks are monitored, controlled and reported to the Board.

The diagram below sets out a description of how risk governance operates in the Group together with key responsibilities of the Board, the Group Executive Management, Business Units and Audit.

2. MATERIAL BUSINESS RISKS

Following a review during the reporting period, the Group identified and confirmed 7 material business risks for the organisation.

All risks are routinely monitored and corrected. Risks are escalated to the Board where significant impact on business operations occur.

3. EXTERNAL AUDITOR

KPMG has been the Group’s external auditor for over 20 years. The external audit appointment and performance reviewed annually. The Board re-appointed KPMG as external auditor in 2018. Every five years the lead audit partner responsible is rotated.

Ms Suzaan Theron was appointed lead audit partner for KPMG for financial year 2019 (FY19). She was previously lead audit partner from FY10 to FY14.

Details of the non-audit services provided by the external auditor over the reporting period are included in the Financial Statements. The Audit Committee has not set any nominal “cap” on the level of non-audit services to be performed by the external auditor, as it considers that this may restrict the ability of Credit Corporation to access the best advisers for the particular task.

KPMG has provided the required independence declaration to the Board for FY19. The independence declaration forms part of the Directors’ Report in the Annual Report.

Credit Corporation does not invite any ex-Group audit partners to be appointed as Directors. If such a person was proposed for appointment in a management position, this would require Board approval.

The lead audit partner attends and presents audit findings to the Audit Committee, is the available to meet with members of the Audit Committee as and when required including holding in camera meetings with the Committee without management’s presence.

The lead audit partner attends the Credit Corporation’s AGM and is available to answer questions from shareholders relevant to the audit.

4. INTERNAL AUDITOR

The Group has an independent internal audit function (Group Internal Audit), based in Fiji. Group Internal Audit provides independent and objective assurance services to management and the Board in relation to the internal controls, risk management framework and governance of the Group. It does so through:

  • performing audits in accordance with an Internal Audit Plan. The Plan is formulated using a risk-based approach and approved annually by the Audit Committee;
  • having direct access, and being accountable, to the Board through the Audit Committee, with the right to communicate to it in the absence of management; and
  • regular reporting to the Audit Committee on the results of its audits.

The Audit Committee reviews and approves the Internal Audit Charter each year. It also reviews the performance of the Internal Audit Manager and the internal audit function.

 

IV. COMMUNICATING WITH SHAREHOLDERS

1. SHAREHOLDER ENGAGEMENT

Shareholders and other stakeholders are informed of all material matters affecting Credit Corporation through PNGX announcements, periodic communications and a range of forums and publications, available on Credit Corporation’s website. These communications are part of Credit Corporation’s continuous disclosure obligations. Shareholders have the option to utilise electronic communications.

Other shareholder engagement activities include:

  • the Annual General Meeting;
  • the Annual Report; and
  • regular releases of financial information, including half and full-year financial results.

 

V. CORPORATE ETHICS

1. CORE VALUES

The Group’s core values are

  • integrity;
  • customer commitment;
  • maintaining highest standards in all aspects of business; and
  • building a strong, honest & motivated employee group.

2. CODES OF CONDUCT

Credit Corporation has consistently themed Codes of Conduct throughout the organisation. These Codes set out the standards expected of Directors and employees. The Codes of Conduct emphasise the standards of honesty, integrity and fair dealing by all employees in their interaction with customers, suppliers, the community, competitors and each other in the performance of their duties.

3. OTHER POLICIES

The Board and executive management maintain a range of other policies which define Credit Corporation’s commitment to good corporate governance and responsible business practices.

 

VI. DIVERSITY

Credit Corporation drives diversity throughout the Group in a number of lead areas such as social diversity, gender, skills and experience and thought leadership. We celebrate diversity and inclusion and see these as key strengths. Across our operations spanning five nations – in our boardrooms, meeting rooms, branches, and all places in between – this commitment to diversity and inclusion helps ensure that everyone at Credit Corporation feels valued, respected and heard.

We believe teams that are both diverse and inclusive attain higher levels of engagement, loyalty and growth and through diversity of thought comes innovation and better decision-making. As a company that is founded on strong partnerships and relationships, we know that diversity and inclusion help us better reflect different needs and perspectives of the communities we serve so we are better able to meet their needs.

Our commitment to diversity and inclusion goes beyond the doors of our business. We support customers and communities through a range of initiatives, such as making financial services more accessible to customers with diverse needs and contributing to branch level celebrations of cultural expression.

Credit Corporation is proud to promote inclusion in the communities where we operate, and to support the diversity of all our employees and customers.

The Group supports female representation at all levels of management and business operations and has appointed many talented female Directors and employees. Focused leadership coaching and mentoring will continue as part of our overall succession planning for male and female talent.

 

VII. CORPORATE SOCIAL RESPONSIBILITY

The Group supports community projects and incentives that relate to women’s and children’s health welfare, local disaster relief outreach programs and youth through sporting sponsorships. This community support is reported at page 21 of this Annual Report.